Aircraft Operator Insolvency: Insolvency Remedies.

A high-value asset requires significant and secure financing. Suppose the asset is “mobile” like an aircraft (the value of a B737 Max or an A320Neo can vary between $90 and $120 million), this becomes all the more complicated as the security provided for the financing must be valid in all jurisdictions.

Although several conventions govern various aspects of aviation, none directly addressed the financing and acquisition of aircraft prior to the Convention on International Interests in Mobile Equipment, i.e. the Cape Town Convention (CTC/Convention), which entered into force on November 16, 2001, at a diplomatic conference in Cape Town, South Africa and was acceded to by India on March 31, 2008, which after a waiting period of three months, entered into force on 1 July 2008.

The Indian Constitutional framework gives the executive power to enter into a covenant/treaty as it is an executive decision. However, a more delicate nuance that is of great importance is that unless the treaty provisions are incorporated into the domestic legal framework, in the event of a conflict, the domestic law will prevail over the convention/treaty requirements.

CTC has played a vital role in providing parties with viable remedies for non-performance, reduced cost of financing, a public registry of documents relating to the ownership and safety of an aeronautical object in the form of a register international and, more importantly, a network of approximately 83 countries. who have acceded to the Convention.


In a default scenario, including the insolvency of an aircraft operator, it becomes imperative for the owner/financier or creditor to regain control of the aircraft and secure it in the jurisdiction of their choice. In the Indian repossession experience, we have noted a remarkable shift in the way foreclosures have evolved from the days of Kingfisher to the latest Jet Airways.

It is essential and in the interest of stakeholders, including consumers, that the CTC is integrated fairly quickly into the national legal framework; this not only makes the transactions eligible for a 10% discount from the OECD (Organization for Economic Co-operation and Development), but also offers the creditor the necessary relief from the CTC (which has already been chosen by India in its declaration under the CTC) if the operator goes bankrupt.

Given that India has not explicitly excluded intra-country transactions from the effect and coverage of the Convention, it will be all the more crucial that it is now adopted holistically. This is also particularly important considering the initiative that the Government of India has taken in setting up the Aircraft Leasing and Finance Platform at GIFT IFSC, Gujarat.

(Neha Singh is Associate Partner, Link Legal).

Published on

April 17, 2022

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